The Most Important Chart for Gold Investors

Dear Reader,

With the press going crazy about the Anthony Weiner scandal, I’m reminded of our confused moral compass when it comes to politics. In my opinion, Anthony Weiner should resign, but not because of his sex scandal. Yes, Weiner acted in a morally reprehensible way, and yes, he lied to the American public. But if we made a list of the morally questionable actions of any Congressman, where would one place a sex scandal?

Congressmen are bribed on a regular basis by special interests with promises of revolving-door jobs and campaign finances. Furthermore, they lie to the American public election after election. On a rank ordering of immoral decisions of the average Congressman, Anthony Weiner’s sex scandal is way down the list. While the American public is captivated by the details of racy sex scandals, Congressmen regularly race into the public’s pockets.

Let’s take a look at Weiner himself (pun intended). Over the last decade, Weiner has received $487,365 from the real-estate industry – his top industry supporter. Not surprisingly, Weiner has sponsored legislation such as H.R. 3527, the FHA Multifamily Loan Limit Adjustment Act of 2009. Let’s have a look at the bill’s summary:

Amends the National Housing Act to revise the maximum mortgage loan principal amounts the Secretary of Housing and Urban Development (HUD) may insure for elevator-type multifamily structures for: (1) rental housing; (2) cooperative housing; (3) rehabilitation and neighborhood conservation housing; (4) housing for moderate income and displaced families; (5) housing for elderly persons; and (6) condominiums. Replaces the current specific dollar amount limitations per family unit by which the insurable mortgage principal obligation for elevator-type multifamily structures may be increased. Prescribes instead an increase limitation per family unit of up to 50% higher than the corresponding limitations for non-elevator-type multifamily structures.

Authorizes the Secretary to prescribe a higher maximum (up to 50%) for the principal obligation of mortgages insured for multifamily projects located in an extremely high-cost area (similar to that for mortgage insurance for property in Alaska, Guam, Hawaii, and the Virgin Islands).

That kind of helps the real-estate industry, doesn’t it? On top of that, the bill helps Weiner’s top 2010 donor, M&R Management, a real-estate company with elevator buildings in an extremely high-cost area. In the past decade, Weiner’s campaigns have received $49,500 from M&R Management alone.

Instead of being outraged over a sex scandal, the public should really be outraged over deals like this one. And Weiner is no special case: Just about every member of Congress plays the same game. In comparison to these back-room deals, a sex scandal is nothing.

Weiner and the rest of Congress should resign not for their private transgressions, but for their misdeeds performed right in front of everyone’s eyes.

Before we get started with the rest of the issue, I need to mention a special double-dip bundle offer available only this week. We’re offering our 23-CD Casey Research Summit audio set and a year-long subscription to The Casey Report for nearly a $300 discount. Don’t miss out on this opportunity.

Next up, Jeff Clark will examine the gold corrections of the late 1970s and compare them to today’s corrections. Then, the Casey Research energy team will discuss the prospects for shale gas technology in the rest of the world. Finally, don’t miss Doug Casey’s talk on This Week in Money in the links section.

The Most Important Chart for Gold Investors

Jeff Clark, BIG GOLD

The gold price has been rising steadily for almost a year now, with nary a correction. It fell only 4% last month, and the biggest decline since last July was November’s 5.8% drop. These barely register as “corrections” when one considers we’ve had 18 of them greater than 5% since the bull market began in 2001.

We’re getting used to a persistently rising gold price. Any decline is met with more buying, pushing the price to new highs. But how long can we realistically expect this pattern to continue?

The answer will ultimately be determined by the fundamental factors pushing on the price – more Greece, more money printing, and more economic bad news will all drive gold higher. But even then, have we really said goodbye to big corrections?

History can provide a clue. If we could find a time period within a gold bull market where the price sidestepped major falls, then it might be reasonable to think we’ve entered a period where it will continue steadily climbing. On the other hand, if gold saw big corrections even during, say, a mania, we might need to be on the lookout for them no matter how bullish the factors are today.

Here’s a chart of the corrections that occurred during the final two years of the 1970s mania – one of gold’s biggest parabolic runs in history.

During this historic run, there were seven significant corrections. On average, that’s one every 3½ months and a 10.1% decline. You’ll also see that they were very sharp; four lasted less than ten trading days and all were less than a month. This all occurred in the middle of the mania.

If history is any guide, our correction in January was small, and will be the first of many.

In fact, historical precedent shows that volatility is the norm, even during the Mania Phase of a gold bull market. Big moves, both up and down, are common. I can’t point to a date on the calendar, but sooner or later we’re going to have another downturn, and it won’t be the only one.

This means that great buying opportunities will present themselves regularly. And we show exactly how to capitalize on the next correction in our third annual Summer Buying Guide in the June BIG GOLD. We’re convinced our charts will give you the confidence to buy gold, silver, and precious metals stocks when the weak hands are nervous and selling… Check out this month’s issue risk-free…

How Shale Gas Might Transform the Energy Markets

By the Casey Research Energy Team

In the midst of roller-coaster oil prices and a global reassessment of nuclear power, in early April a key development in the natural gas arena slipped by mostly unnoticed: a report from the U.S. Energy Information Administration (EIA) about global shale gas potential.

We all know that shale gas discoveries in America have altered the country’s gas picture dramatically – a twelvefold increase in production over the last decade has transformed the U.S. from an importer to a self-sufficient, natural-gas-loving nation, while also pushing natural gas prices way down. U.S. shale gas production increased by an average of 48% a year from 2006 to 2010, and output is expected to rise almost threefold between 2009 and 2035, according to the EIA’s latest Annual Energy Outlook.

In the face of such impressive shale success in America, many began to wonder about shale gas potential in other parts of the world. In response, the EIA commissioned a report estimating the global volume of shale gas outside of the United States and the results are, well, a bit mind-boggling.

The report marks the first attempt to estimate the volume of technically recoverable shale gas on a global scale, and did so by assessing 48 shale basins in 32 countries outside of the U.S. (where the resources were already known). While U.S. resources stand at an impressive 862 trillion cubic feet (tcf), those 48 global basins contain an estimated 5,760 tcf of technically recoverable shale gas. That gives a global shale gas total of 6,622 tcf.

To put that into perspective, most current estimates of the world's technically recoverable natural gas resources (not including shale gas) come in at 16,000 tcf, which means shale resources add more than 40% to the world’s gas volume.

And that’s not all. The study excluded several major types of potential shale resources, based primarily on data limitations. Importantly, the study only covered 32 nations and excluded several gas-rich countries, including Russia and nations in the Middle East. Large, conventional gas resources in these places mean there has been little reason to look for shale gas, so we still have little clue as to how much is there, though most expect sizable amounts. The study also excluded offshore basins. As such, the world’s shale gas resources are certainly larger than this initial count.

Here’s a shortened table, summarizing some of the study’s findings.

We can pull two groups of countries that might find shale gas development pretty attractive out of this table. The first is those countries that currently depend heavily on natural gas imports but also have significant shale resources: France, Poland, Turkey, Ukraine, South Africa, Morocco, and Chile. The second group is those countries that already produce substantial amounts of natural gas and also have large shale resources. In addition to the United States, this group includes Canada, Mexico, China, Australia, Libya, Algeria, Argentina, and Brazil.

There are major differences within these groups, however, on whether to utilize shale resources. France, for example, is thought to have comparable shale resources to Poland. Poland has traditionally relied heavily on Russian natural gas imports, so the country has been keenly issuing shale exploration licenses. Polish Prime Minister Donald Tusk recently said that, while shale gas development has to be environmentally sound, “Our determination is clear: Every cubic meter of gas in Poland must be used if possible.” By contrast, the French government has placed a moratorium on shale gas exploration in response to widespread concerns about the environmental impacts of horizontal drilling and fracturing.

Perhaps the biggest surprise from the above list is China. The shale gas estimate for China came in so high that the country’s National Energy Administration commissioned a shale gas development plan. The China National Petroleum Company completed its first horizontal shale gas test well in late March and is moving quickly to explore China’s shale reserves in partnership with experienced gas producers like Royal Dutch Shell and Chevron.

Energy-hungry China is unlikely to let environmental concerns impede development of what seems to be a truly staggering domestic, unconventional gas resource. In other parts of the world, such as Europe and increasingly, North America, residents are becoming more vocal in their concerns about shale gas.

Environmental backlash could in fact pose the biggest obstacle to shale gas production. There are widespread concerns around the use and disposal of fracking fluids, which are proprietary mixtures of water, sand, and chemical lubricants. Many believe that fracking fluids can – and in places already have – contaminate groundwater aquifers; there is also a major debate about how to dispose of the huge volumes of fracking fluids created in drilling a single well. In addition, a set of recent studies countered the common claim that natural gas is a ”green” fuel, which is based on gas producing less carbon dioxide per unit of energy than “dirtier” fuels like coal. While that may be true, the studies investigated the total carbon emissions created in drilling and fracking a well and collecting, processing, and burning the gas. They found that natural gas is actually worse for the environment than coal.

The debate over fracking will undoubtedly continue for years. The EIA report has added fuel to that fire, as it will be hard for the world to ignore a fuel resource of this size. However, finding shale gas is just one small step toward actually producing it. The report suggests that any shale gas development outside of the United States is likely five to ten years away, primarily because many of the countries that could benefit from shale production do not have the specialized equipment needed to drill and frack horizontal wells.

In fact, one nonprofit think tank – the Post Carbon Institute – is challenging the idea that shale gas production can continue apace even in the U.S. The Institute investigated what would be required to maintain the production increases and determined that the infrastructure requirements are unrealistic. Study author David Hughes estimates there is actually only a 12-year supply of easily accessible, domestic natural gas, in part because well productivity is declining. To maintain the current rate of production would require the drilling of 30,000 wells annually – a slight increase from the current rate of 25,000 and a level that Hughes believes will incite a major environmental backlash. While not everyone will agree with Hughes’ conclusions, it is true that ”technically recoverable resources” often stay in the ground for a very long time because they are not realistically or economically recoverable.

And here’s yet another reason why it may take a long time for the shale gas phenomenon to grow outside of the United States: As long as natural gas prices remain depressed it will remain cheaper for countries to buy gas rather than to develop their own resources. Mexico, for example, is building six new natural gas power plants this year but is planning to increase imports to fuel those plants even though state-owned Petroleos Mexicanos (Pemex) recently discovered as much as one trillion cubic feet of gas reserves. Instead of developing those fields in the northern state of Coahuila, Pemex will instead focus on oil output, and the Mexican state power utility will import more gas.

We all like to imagine renewable resources powering our future, but the truth is that coal, oil, and natural gas currently provide more than 80% of the world’s primary energy needs. Nuclear power adds only 6% and renewables contribute just 2% of global energy – a figure that will at best rise to 7% by 2035. So it seems very likely that shale gas will play an increasingly important role in the years to come. How much of this massive resource will actually see development remains to be seen. But now we have a start on understanding just how much shale gas the world has to offer, and from here economic and environmental concerns will have to fight it out.

Additional Links and Reads

Doug Casey on the SEC and Middle East (This Week in Money)

Doug Casey dismantles the myth of the SEC as a necessary guardian of individual investors. Any benefits have to be weighed against the costs. In the case of the SEC, that means a $2 billion budget as well as the billions spent by companies to meet SEC regulations. Is that money really worth it when the Madoffs of the world are still robbing us? Doug explores this question as well as his thoughts on the Middle East.

Chinese Official Warns on Dollar Assets (Financial Times)

A Chinese official warns of China’s overexposure to the U.S. dollar, and the Chinese government quickly pulls his remarks off the Internet. China is in a tough spot when even one opinion on the dollar can threaten its precarious position.

Swipe Fee Vote Wednesday: Senate Tests Limits of Wall Street Power (The Huffington Post)

On Monday, I noted the many regulations faced by banks. Here’s one that would cap merchant fees for debit-card swipes. It’s tough for banks to plan for the future without knowing what their future business will even be. Is anyone surprised that the banks haven’t recovered yet?

That’s it for today. On a side note before we end for the day, I wanted to mention one more reason to get rid of Anthony Wiener. It’s because he’s apparently rather dumb. Weiner really thought that he could get away with denying his online affair when there were five other women with whom he was similarly engaged. Only an idiot would assume the rest would be quiet. Has he never heard the phrase, “Hell hath no fury like a woman scorned”? Each woman was surely unhappy to hear about others. What a doofus. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey's Daily Dispatch Editor